J.P. Morgan: Mao Geping Demonstrates Strong 2026 Growth Certainty, Overweight Maintained
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J.P. Morgan: Mao Geping Demonstrates Strong 2026 Growth Certainty, Overweight Maintained
Management commits to no short-term selling to alleviate concerns; Q1 sales up over 20%; same-store sales growth beats expectations; maintain HK$130 target price.
- Management commits to no reduction plans over the next six months, alleviating investor concerns following the placement.
- Q1 sales grew over 20% year-on-year, with offline same-store sales growing over 12%, outperforming full-year guidance.
- Maintains 2026 sales growth guidance of 30% with stable profit margins.
- Actively expanding into overseas markets; first Hong Kong store has opened, with plans to enter Southeast Asia and Europe.
- Mid-term goal is to open 600 counters (445 by end of 2025), netting approximately 30 new stores annually.
- Target price of HK$130, implying a 2027 expected P/E ratio of 31x.
Report interpretation
Overview
Following the 2026 Global China Summit, J.P. Morgan released meeting minutes reiterating an "Overweight" rating on Mao Geping-H (1318.HK). The report notes that despite recent placements, management's commitment to no share reductions in the short term (six months) effectively mitigates market concerns. Mao Geping demonstrates robust 2026 growth visibility, with strong Q1 sales performance where offline same-store sales growth exceeded full-year guidance levels. Recognized as the top pick in the Chinese beauty sector, Mao Geping leverages its leadership in experiential consumption, a clear store expansion roadmap, and product advantages tailored to Chinese consumer characteristics.
Core views
Growth Momentum and Channel Performance: Mao Geping reported over 20% year-on-year sales growth in Q1, with offline channels growing approximately 20% and same-store sales growth (SSSG) exceeding 12%. This performance beat full-year guidance, and trends remain solid in April. Online, the company launched marketing activities for the upcoming "618" promotion early on May 1st to seize the initiative. Given that "618" and "Double 11" account for approximately 40% of annual online sales, this move is critical. Clear Mid-Term Growth Path: The report highlights significant room for growth in customer penetration for Mao Geping. Currently reaching 6.4 million offline customers (target: 40 million) and 15.6 million online customers (target: 300-400 million). On the product front, the company launched new items in Q1, including the Radiant Activation Series, skin wear, and sunscreen/isolation milk. Regarding the store network, the mid-term plan targets 600 counters (vs. 445 at the end of 2025), maintaining a net opening pace of approximately 30 stores annually, primarily focusing on high-end malls in higher-tier cities. Overseas Expansion and Shareholder Returns: Starting with the opening of its first Hong Kong store in October 2025, the company is actively exploring overseas markets. It expects to open more stores in Hong Kong in 2026, with potential entry into Southeast Asia and Europe, mainly via company-owned flagship stores in high-end malls. Additionally, a strategic partnership with L Catterton enhances global expansion visibility. Regarding shareholder returns, the company maintains a dividend payout ratio of over 30% and is preparing a share buyback program.
Analysis framework
The report employs a combined top-down and bottom-up analytical approach. First, based on the macro trend of "experiential consumption," it positions Mao Geping as a scarce domestic high-end brand offering one-on-one personalized makeup and skincare services, possessing a differentiated competitive advantage. Second, it validates short-term earnings visibility by breaking down channel data (online promotion timing, offline same-store sales growth). Third, it derives mid-term growth potential using customer penetration data and store expansion plans (from 445 to 600 stores). Finally, it sets a target price using a DCF valuation model with a Weighted Average Cost of Capital (WACC) of 8.0%, comparing its potential to double market share in the high-end cosmetics sector (from 2% to 4%) to support long-term earnings CAGR expectations.
Methodology notes
DCF Valuation Model
The report uses the DCF method to calculate the target price, assuming a risk-free rate of 3.0%, equity risk premium of 6%, cost of equity of 8.4%, and terminal growth rate of 2.0%, resulting in a WACC of 8.0% to assess the company's intrinsic value.
Customer Penetration Upside
By comparing current customer bases (offline 6.4 million/online 15.6 million) with potential target audiences (offline 40 million/online 300-400 million), it quantifies the future user growth ceiling and penetration potential of the brand.
Experiential Consumption and Differentiated Service
Emphasizes that Mao Geping has established a differentiated retail experience through "one-on-one" personalized service, forming its core moat in the high-end beauty market, distinct from pure product-selling brands.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Mao Geping-H (1318.HK)Beneficiary: Leader in experiential consumption trends, strong growth certainty, opening new spaces through overseas expansion.
- Strengths
- 25-year brand history, differentiated one-on-one service experience, R&D of products tailored to Chinese facial features, clear store expansion roadmap.
- Comparison
- J.P. Morgan lists it as the Top Pick in the Chinese beauty sector, believing its market share has potential to double from 2% to 4%.
- Risks
- Key personnel risks, weaker-than-expected consumer sentiment, slower-than-expected offline expansion, intensifying competition, failure of new brand/product launches.
Key data
- 2026 Sales Growth Guidance+30%Margins remain stable
- Q1 Sales YoY Growth>20%In line with internal expectations
- Q1 Offline Same-Store Sales Growth (SSSG)>12%Outperforms full-year guidance
- 2026 Net Store Opening Target30 storesPrimarily located in high-end malls in higher-tier cities
- Mid-Term Store Target600 counters445 counters by end of 2025
- Dividend Payout Ratio>30%Stable dividend policy
- Target Price Implied 2027 P/E31xBased on DCF model
Impact & implications
The report considers Mao Geping the top pick in the Chinese beauty sector, noting that its robust growth visibility and clear expansion strategy will support stock performance. Management's commitment to no short-term sell-offs helps repair market sentiment damaged by recent placements. With overseas expansion and increased domestic penetration, the company is expected to achieve double-digit compound growth in revenue and profits between 2025 and 2028, further consolidating its position in the high-end cosmetics market.
Risks
- Dependency on key personnel
- Consumer sentiment weaker than expected
- Offline store expansion slower than expected
- Intensifying market competition
- Failure in new brand and product promotion
What to watch
- Online sales performance for "618" and "Double 11"
- Progress on new store openings in Hong Kong and overseas
- Improvement in new customer penetration rates
- Implementation progress of the share buyback plan